How Does the Dividend Yield of an Underlying Stock Affect the Value of a Put Option?

A higher dividend yield on the underlying stock generally increases the value of a put option. When a company pays a dividend, the stock price typically drops by the dividend amount on the ex-dividend date.

This expected drop in the stock price makes the put option, which profits from a price decline, more valuable. Furthermore, the possibility of early exercise for American-style puts increases before a large dividend payment.